Running Head: Financial Management

Financial Management
Valerie Cazeau
Professor Roy Viar
Contemporary Business
Strayer University

Abstract
This assignment examines Google as one of the leaders in the information searching industry and its main competitor Microsoft with its introduction of Bing. The examination of these two organizations stem around their business models and their most recent financial statements which include, specific financial ratios, core business ideas, leading services, management styles and their innovation tracks. In addition, this assignment will analyze which company would better survive a major recession, which organization is better to invest in and provide the guidelines for doing so.
Introduction
To start, the financial ratios of Google and Microsoft will be listed. By doing this, it will create a great platform to analyze the companies’ differences and ultimately conclude which company shows the best resistance to a major recession and ultimately which company may be best to invest in.

Here are the six main financial ratios that will be analyzed for Microsoft and Google. Microsoft Google
Current Ratio 2.9 5.6 Return on Assets 21.9% 13.9%
Return on Equity 39.5% 17.5%
Debt Ratio .20 .08
Fixed Asset Turn Over Ratio .7 .6
Dividend Payout Ratio/Cash Flow
Per Share $3.12 $34.90
Price/Earnings Ratio 3.64 18.0

(Google Inc. and Microsoft Corporation, 2011. Forbes)

Microsoft started innovating technology when it was created 1975. Since then, the organization has continuously innovated their software, services, and hardware to bring satisfaction to their consumers.
Microsoft is a global force that develops, licenses, and supports a wide range of software products and services, by designing and selling hardware, and by delivering relevant online advertising to a global customer audience. Products Microsoft is known for include operating systems for personal computers, servers, phones, server applications for distributed computing environments, productivity applications, business solution applications, desktop and server management tools, software development tools, video games, and online advertising. (2010 Annual Report of Microsoft)
The most popular of products may include the Xbox 360 gaming and entertainment console, Kinect for Xbox 360, Xbox 360 accessories, and Microsoft PC hardware products. Microsoft also offers consulting and product and solution support services, and they train and certify computer system integrators and developers. In addition, Microsoft also offers cloud-based solutions that provide customers with software, services and content over the internet by way of shared computing resources located in centralized data centers. Examples of cloud-based computing services Microsoft offers include Bing, Windows Live Essentials suite, Xbox LIVE service, Microsoft 365, and Microsoft Dynamics CRM online. These products and services are examples of how Microsoft strives to deliver to innovative, high-value solutions through software and services to cater to the needs of its customer and sets the stage for the organization’s future growth. (2010 Annual Report of Microsoft)
Microsoft’s mission is to “enable people and businesses throughout the world to realize their full potential”. In order to achieve their mission, the organization must start with their employees. Microsoft prides itself on retaining people who are bright, creative, and energetic. Microsoft’s management style earns their employees loyalty by creating a crucial work/ life balance in its environment. Microsoft also encourages diversity by seeking people from diverse backgrounds and supports them in taking risks and approaching challenges uniquely in order to maintain an innovative and creative work environment. Also part of Microsoft’s management style is to offers its employees a wide assortment of benefits and training modules to help individuals grow and advance to the next level. (Microsoft Careers: Life at Microsoft. 2011)
On the other hand, Google was incorporated in 1998 and since then has been a global technology leader focused on improving the ways people connect with information. Google’s mission is to organize the world’s information and make it universally accessible and useful. Innovations in web search and advertising have made the Google website a top internet property and one of the most recognized companies globally.
Google primarily delivers relevant, cost-effective online advertising. Businesses use Google’s AdWords program to promote their products and services with targeted advertising. In addition, the third parties that comprise the Google Network use the AdSense program to deliver relevant ads that generate revenue and enhance the user experience. (2010 Annual Report of Google)
Google’s most popular services and products include Android, Google Chrome OS, Google Chrome, Google TV, and Google Books. Google’s applications have also contributed to their success such as Gmail, Google Docs, and Google Calendar to name a few. Google prides itself on being the first to come up with new ideas often to stay ahead of the competition. Google continuously integrates innovative features into their search engines and offer specialized search services to help users tailor their search and also to compete with Microsoft’s Bing. (2010 Annual Report of Google)
While Google is a fairly young organization it has seems they have cultivated a unique work environment to be able to experience so much success so early. Google strives for a diverse workplace and embraces collaboration and creativity, and encourages unique approaches to solve complex challenges. The organization’s transparency and open dialog in the workplace also a part of their management style that has contributed to their success. Google gives their employees the freedom to explore and act upon their ideas regardless of their title. Google also gives its employees a sense of ownership since all of Google’s employees are equity holders.
(2010 Annual Report of Google)
When it comes to which company is better able to withstand a major recession, Google wins. Over these past turbulent years Google has continuously grown and increased its bottom line. This is because of the affect the recession is having on the consumer market. During times where jobs are scarce, companies are downsizing and so on, consumers think twice before spending and now take more time to look for value in products and services. And since Google is the most well known search engine, consumers will continue to use Google now more than ever. In addition, consumers are cutting down on unnecessary expenses such as cable and home phones. Google can fill this void through its products/services, Google phone and Google TV/video. In addition, Google is continuously making changes and advancements in its technology making its products and services better at a faster rate attracting both home users and businesses.(Quittner, J. 2011)
As CEO Eric Schmidt said in 2008, “While we are realistic about the poor state of the global economy, we will continue to manage Google for the long term…it looks like Google will emerge from Great Depression 2.0 bigger and stronger than ever”. (Quittner, J. 2011)
Looking at the ratios between Microsoft and Google, the above stance is validated. This makes Google better able to withstand a recession and ultimately a better organization to invest in. When choosing a company to invest in, performing your own research is crucial to determine the benefits and risks. Two main motivations for investing include receiving dividends or cash payments and the potential of price appreciation of shares. Ratios are a great way to determine a company’s success and ultimately if they are a sound investment decision. A company’s current ratio is a good way to determine their position to pay their liabilities. Profitability ratios help one evaluate the company’s ability to generate revenue while taking operating and other expenses into account. And lastly, the return on equity ratio is crucial to measuring how much shareholders have earned from their investment in the company. (Boone, 2011, p.539)
Looking at Microsoft and Google, Microsoft has a higher ROA and ROE ratio but, it also has a high debt ratio. Google shows a much lower debt ratio and a high price/earnings ratio making them the more sound company to invest in.